​The perennial promises of free stuff from political candidates are front and center again now that we are ensnared in another US election cycle. The knee-jerk response from some economists and libertarians is “TANSTAAFL!” And of course it’s true that There Ain’t No Such Thing As A Free Lunch, because somebody must bear the costs of the supposedly “free” stuff. Nothing is free because every action has an opportunity cost.

Especially when the government is involved in doling out the gifts, all it means is that it was bought with money taken from others. Or, sometimes, the money is taken from the person receiving the gift, who thinks he’s gotten something for nothing. (This is a sleight-of-hand political trick that has fooled many for centuries.)

But what if we interpret “free” in a more colloquial sense? Is it still preferable for the government to give away free stuff? Do unhampered markets provide for free stuff?

Two Definitions of “Free”

Today’s promises include free college, free healthcare, free paid time off of work, and all sorts of goodies. Although the above conclusion (no such thing as “free”) applies to all of these, I want to consider a different, more liberal definition of “free”: gifted.

For example, if Bernie gives Jonathan an apple that Bernie either grew in his orchard or bought at the store and Bernie expects nothing in return, the apple is a free gift from Bernie to Jonathan. The production, purchase, and loss of the apple is costly, but Jonathan bears none of these costs. Jonathan would technically have to expend some time and effort to hold and consume the apple, and he would lose an apple’s worth of carrying capacity on his person, but ignoring these and other technicalities, we can casually say that the apple is a free gift from Jonathan’s perspective.

So now consider this definition for the above examples: freely gifted college, freely gifted healthcare, freely gifted time off, etc. We realize that these already exist, and would exist absent government provision.

There are innumerable scholarships offered by individuals, organizations, and colleges who want certain students to attend college. Organizations like St. Jude’s, Doctors Without Borders, and Operation Smile offer freely given medical services to patients. And many businesses already allow their employees vacation days, medical leave, and family leave without them skipping paychecks, although there is an important caveat here that this would be priced into their regular salary or wage unless the employing entrepreneurs want to give from their own means.

This is all not to mention the freebies, BOGO coupons, “freemium” apps, and other marketing strategies retail stores employ.

Why Do People Give Gifts?

First, we must have more than we want to keep for ourselves.

Widespread abundance like this is only possible with relatively unhampered markets and roundabout production in place, where entrepreneurs are correctly guessing consumer demands and a large capital structure made possible by saving yields plenty of consumer goods. We have to create wealth before we can exchange it, consume it, or give it away.

But once we have such an abundance of means, the reasons for giving are countless and outside the scope of economics. An altruist might give out of generosity, but even a greedy businessman could give because of increased storage costs for all of their inventory, or as a plan to attract customers.

It should be noted that self-interest motivates both the altruist and the greedy businessman. The altruist’s actions are self-interested because she is satisfying one of her own ends by relinquishing ownership of the donated means to somebody else.

Voluntary vs. Involuntary Giving

When the giver gives voluntarily and the receiver accepts the gift, we can say it represents a mutually beneficial arrangement. The same cannot be said for forced redistribution.

When Bernie gives Jonathan the apple, Bernie is satisfying the highest ranked end he has for that apple. If, however, Bernie stole the apple from somebody else before giving it to Jonathan, then we can say with certainty that the exchange of the apple is not mutually beneficial.

The same goes for college scholarships and medical care. If the government takes the means to give somebody free college, then it does not represent a mutually beneficial arrangement, or else the individual would have voluntarily donated the money for the student to go to school.

Unlike private charities and scholarship funds, the government has no reason to dispense the gifts prudently or to minimize their own cut to maintain a donor base that is confident their donations are used efficiently and for the intended cause.

Forced redistribution also tends to spur bitterness and conflict, as opposed to gratitude and goodwill.

Proponents of Free Stuff Should Look to Capitalism, not Redistributionism

The conclusion we can draw here is that we get just the right amount of “free” stuff through the voluntary interactions of individuals in unhampered markets. And, not only that, but as capitalistic economies inevitably grow and the people become increasingly wealthy, charitable giving can increase as well. As the supply of goods that satisfy our ends gets larger, those marginal goods are more likely to be valued in terms of giving them away rather than keeping them ourselves.

Therefore, those that desire more free stuff should try to encourage more voluntary giving (maybe even leading by example), not forced redistribution. They should also be the loudest proponents of unhampered markets as any voluntary giving must come from wealth that has already been created and in such abundance as to allow for greater giving.

One thing "free market economists" like to assume is that the economy is "efficient". Nothing could be further from the truth. Everything from knowledge gaps, biases, sloth and deliberate manipulation interfere with efficient functioning of markets.

Let's take for example education. Is Dr. Paul suggesting that parents be made to pay for primary education (K-12)? Is it in society's interest to have uneducated children grown into adults because their parents can't or won't afford $10,500 / year / child (so someone with 3 kids, $31,500 / year)?

If you say no to that, what is the magical difference between primary education and university education? It's a fact that many individuals who could not afford a university education would, in the end, help the economy by becoming educated, producing more, and thereby, in the long run, producing much more for society.

In other words, paying for education is not just a "hand-out", say, like military contracts; it is an "investment", an "investment" that society makes because in the end society benefits from having an educated workforce.

This points to one of the problems noted above, about lack of full knowledge, particularly knowledge of externalities.

Let's look at all of the most successful economies in the world. One would assume, under Dr. Paul's reasoning, that the ones who do not have free primary education will be the most successful, since all of these goblins raised in the article would not hold. But is that the case? Obviously not!

Reply

LibertyMinded

2/23/2016 03:19:35 pm

The economy would be efficient if the inefficient government would keep its hands out of it. Take a look at the auto industry. Our government took our money and propped up one company (GM) due to fiscal irresponsibility. It is not the government's place to interact in the economy in such a way. Now, take Ford. They took zero dollars of government money. They sold off divisions, worked with their union labor and came out the other end lean and efficient. The government messed with the economy and actually made it less efficient. GM should have died or took a page out of Ford's book.

As it pertains to education, it is NOT the responsibility of the government to educate our children. I know. Big gasp! Our founding fathers did not go to public school. They were home schooled and they were smart enough to ban together, fight for liberty and write a constitution that our country's laws were based off of. And they did that ALL without public schooling or handouts for college.

I grow so weary of the population relying upon our government for everything. There are 4 and only 4 principal reasons for the Federal Government. EVERYTHING else is not in their purview and is an overreach of power.

The 4 principal reasons why our federal government was formed:"(1) The common defense (national security);(2) the preservation of public peace, as well against internal convulsions as external attacks;(3) the regulation of commerce with other nations and between states;(4) the superintendent of our intercourse, political and commercial, with foreign countries (foreign affairs)." - Alexander Hamilton, Federalist Paper No.23, 1787.

Education is an investment. I completely agree. But it is an investment that EVERY parent should make in their own children rather than relegating the responsibility to a government institution that does not know our children like the parents do and are not equipped to help them with their futures like the parents do. I have witnessed single parents, without external aid, while working a full time job, come home and educate their children at home and those kids grow up to be productive citizens. So, any excuse of time or money goes out the window with me as an argument. If you want the investment of education in your children bad enough, you will find a way. You. The parent. NOT the government.

Dr. Paul talks about citizen accountability and not government dependency. And he is the only one speaking the truth out there.

Reply

CalDre

2/23/2016 10:02:06 pm

"Our founding fathers did not go to public school. They were home schooled" For example Washington and Jefferson were schooled away from home, both by Priests (i.e., Church school). Jefferson learned classical languages, math, etc., and thereafter went to college, and thereafter obtained legal training. Hardly home schooled. By the way, in many ways, in those days, the Church was the State - except nobody got to vote for the leaders. But they essentially taxed people (at pain of eternity in hell), and used this money to - GASP! - provide education and welfare.

"it is NOT the responsibility of the government to educate our children". Granted, but states do not have this limitation.

"it is an investment that EVERY parent should make in their own children" Many can't and many others won't. Blame them all you want, call them cretins, but them's the facts. So their children should suffer their lives as illiterates? You should go visit a country without free public education (which you don't HAVE to use), and see how successful they are. On the other hand, find me a country that is a leader in technology, culture, etc. that does not offer free education? Japan? S. Korea? Germany? US? Sucks when theory runs into the wall of reality?

Maldek

2/24/2016 09:16:53 am

@CalDre
Both you and Dr. Paul are right. Responsible parents who did learn how to use their minds (like the education System in finland for example) are the best source of education for their children.
These parents will produce even better thinkers with every new generation.

On the other Hand, the goverment education in the US or Germany has a different Goal. It will produce People who are good sheep. They will do as they are told. Find their place in the big machine and do their Job. No mental capacity here to educate themselfs, even less their children. A Society of servants, often public servants, will be the outcome.

You get what you pay for. More freedom or more goverment "protection" - you can not have both.

CalDre

2/26/2016 11:57:28 pm

@Maldek

You are right, there are motivated parents who have the time, energy and skill to educate their children far better than a public school, with its propaganda and indoctrination functions, can perform. And for that (and other) reasons, public education should never be compulsory.

But if you are honest you will admit it is a small minority that fits into this category - heck, I know many people who don't even take the time to train their dogs, although that is a far easier task. Think about your friends and colleagues in life that you respect, how many were home-schooled and how many schooled in public or private schools by non-parents? Dr. Paul himself attended a public high school (can't find info on his elementary school), and private college and doctoral program (but, no home-schooling for that!).

By the way, I am all for home-schooling, private schooling and alternative schooling. Not at all a fan of the public indoctrination system. But the issue in this article is whether education should be *free*, not how it should be structured.

CalDre

2/23/2016 11:34:29 am

On the other hand, paying $500,000 to hospitalize/care for a retired, 70yo cancer patient, who will very likely die anyway, is not an "investment" but a large "hand-out" to the medical industry.

The difficulty lies in drawing lines, and when people do, you hear all this talk of "death panels". The people making these derogatory comments then must take it to the logical conclusion: be willing to pay *anything* to save a life. But obviously that does not work since e.g., one could spend the entire federal budget on saving just one person's life (e.g., putting all the money into finding a "cure" for a very rare disease). Obviously the chronic complainers would object to that, since the cost would be everyone else dieing (their funds having been used up for the one ill person). So the result is "death panels" are an inevitability.

Indeed "death panels" exist not only in medical situations, but in virtually all industry. For example, you can show statistically that spending an additional $300,000 on highway safety is likely to save one traffic fatality. People might say, then spend it. But at some point the pickings get slimmer; and eventually you will reach the point where it will take $3 million or $30 million to save another life. So at some point society has to decide, it's not worth it - i.e., so-called "death panel". Same holds true for food production, automobile production, construction (earthquake / tornado tolerances, etc.).